2024 was a choppy year on the UK tech scene. Year on year funding fell (again), tax burdens on businesses increased and there was a lot of backlash against government tech moves.
There were some notable raises, though — none more so than autonomous vehicle company Wayve’s $1bn Series C in May, a record sum for an AI company in Europe — and a number of VCs closed funds north of $1bn.
But what do investors think 2025 has in store for UK tech? Sifted spoke to Hoxton Ventures, Air Street Capital, AlbionVC and Index Ventures to find out.
AI talent flywheel churns out more UK startups
Hussein Kanji, partner at Hoxton Ventures
In 2025, we’ll continue to see new AI companies coming out of the UK ecosystem of talent, from companies like DeepMind, Revolut, ElevenLabs, Synthesia and others.
More US investors are going to back these companies, as they see UK AI talent on par with or better than the US. We’ve already seen examples of this in 2024, with AI new materials startup CuspAI drawing backing from US-based Lightspeed Venture Partners. The startup’s founders are ex-Google and Microsoft.
Investor euphoria around AI will continue into 2025, even though I doubt the long-term ability of general foundational models to eke out an operating margin. It’s not clear to me these are increasing returns to scale businesses, as the space commoditises quickly and the sums to build the next generation models increase with each passing year. Around a third of VC money this year went into AI — but most of those backed companies won’t make it. A lot of the money will simply flow through to the hyper scalers and the chip providers that power them.
Only a handful of AI startups will get there. Those that do will have proprietary datasets that compound over time. One place to look for a breakout will be in a techbio platform company, e.g. a company that can use the combination of AI and experimental data to create new drug targets.
Increased government engagement with AI startups
Nathan Benaich, founder and general partner at Air Street Capital
In 2025, we’ll see a push in government to up engagement with early-stage AI-first companies. This will in part stem from recommendations in Matt Clifford’s long anticipated AI Opportunities Plan, but will also be driven by government departments hoping that technology can help drive savings amid budget tightening. It’s worth keeping a particularly close eye on defence and health.
It remains to be seen whether these efforts will succeed. Past government attempts to open up public services to innovators have often been confined to performative accelerators or other innovation units. These allow departments to appear innovative, while spending very little money and avoiding any confrontation with vested interests.
2025 will be the year where the government decides: is it serious about using AI to remake public services or is it preparing to stage the latest act of innovation theatre?
AI fundamentally changes back-office operations within accounting legal and compliance
Hannah Seal, partner at Index
By 2025, AI will have fundamentally reshaped the landscape of back-office operations within professional services, going beyond simple automation of repetitive tasks to driving intelligent decision-making and innovation.
Accounting, legal and compliance sectors will witness unprecedented levels of efficiency and accuracy as AI systems streamline workflows, reduce human error and provide real-time insights.
This transformation will not only address persistent workforce shortages but will also redefine the nature of work in these fields, allowing professionals to focus on high-value, strategic activities that require creativity and judgment. The adoption of AI tools will make these roles more dynamic and appealing to top talent.
The “future of compute” will emerge as a pivotal focus for UK tech
David Grimm, partner at AlbionVC
The future of compute encompasses the evolution beyond traditional architectures to embrace new modalities such as in-memory, neuromorphic, photonic/optical and quantum computing.
As Moore’s Law — which states that the number of transistors in an integrated circuit doubles roughly every two years — falters and AI-driven demands for computational power surge, the previously niche and unsexy fields of semiconductors and compute are now hot again as innovation is sorely needed. Companies like Nvidia exemplify how critical advanced hardware is to the software revolution, driving significant investment into compute technologies.
I expect VC funding to continue to grow, propelled by big tech’s insatiable need for data centre innovations and startups in the sector beginning to see real commercial traction as big tech’s spending starts to trickle down.
The UK, home to pioneering institutions like the London Centre for Nanotechnologies, is well-placed to capitalise on this shift. Yet it needs to get better at creating and backing this innovation to scale. While engineering talent is strong, attracting domain leaders from Silicon Valley will be crucial for building globally significant companies. The future of compute could define the next wave of tech growth globally—and the UK can lead the charge if it finds a way to overcome some of these challenges.
Read the orginal article: https://sifted.eu/articles/vc-uk-tech-predictions-2025/
